Really need cash flow....401K

[momxx5]

I know we'll take a hit with taxes & penalties, but DH has been laid off. His severance pkg including reg monthly income thus we are unable to qualify for Ch 7.
Since we are in need of cash to pay some annual expenses, as well as a much needed new AC unit from house, we are probably going to take his 401K.

We are thinking about waiting at least 6+ months to file for BK in hopes of either getting into a Ch 7 or DH getting a good job and biting the Ch 13 bullet.

So, I guess I'm asking if we take the 401K now, how will it affect any BK filing? We'd try to keep BK 6+ months later but it would still show on Fed Taxes.
Is it possible to file showing low 6 month income, no CC use and yet still not be into the period of showing taxes?

(The main plan...crossing fingers....is to live pretty frugal and stash away as much cash as possible...under mattress of course)

[Flamingo]

I hope you are aware that the 401(k) account is exempt from BK. Why spend those funds unless it is an extreme emergency? You are going to be hit with a penalty on your 2009 taxes and will also have to pay taxes (state and federal) on the amount. If you are talking a large sum, you are talking a lot of cash going out the window that doesn't have to. Also, most 401(k)s are down in value now and you will really be taking one heck of a hit if you turn a paper loss into an actual loss before you let things take their course and the market rebound. I understand your need to do this but please think it out hard and heavy against any other options and I would confer with a BK attorney to get a good legal opinion before I took any steps to take out that money.

[momxx5]

I do realize the hit. The paper loss has been over 50% in the past 9 months. We still have time before we have to actually act on the 401K but I just don't see where else we would get that sum.

DH was paid an annual supplement/not-bonus bonus each June, so now being laid off we will not have that money....which totals more than 1/3 of income. That money is used to pay annual expenses as well as larger home expenses. We will need a new AC unit, crossing our fingers on the washer holding up, etc.

We are sitting down with BK atty on Tuesday. He told us last week that we don't get a CH 7 and since the debt is high cc debt that we should just sit for a while to see how everything plays out. He is really good with sound advice.

Thanks.

[BigJohn]

What is actually wrong with the AC unit?

What State are you in?

How old is your washing machine?


If you are stuck in a 13, how will you make these extra expenses?

[Flowers]

I sold mine and really regret it. I thought I was supposed to utilize every dime to pay the credit cards and that's what I did. Terrible tax hit even though they held some back.
So uninformed . . . . anyway.

What are the chances of DH finding a new job in the near term?

And also, if your attorney works out a pay-plan for the ch13, do you have the funds to pay a 13???
My income said "13" but when lawyer worked out a plan there was not enough money, so I was forced into a 7. She jokingly called it a "20".

[queenfluff]

I exhausted my 401K this year and last. I had no money or job and had a rent to pay so it was a backup last option for me. Not that I had a huge 401K so for me taking the money out wasn't as big of a deal (I only had around 15,000 - after the market crashed). My thought was that I would rather take it out now and use it when I needed it than lose it to the market because the market was bad. Some of that was money I earned so I see it as that I should be able to use it in emergency. I hate to see it all disappearing like that - I kept thinking "That was money I could have used someday".

If I had job and income and didn't need it I wouldn't have taken it out just to pay bills.

I used it for bills and rent. I took out the last 5,000 left this past February. My lawyer looked at it as income for the six months prior to my filing. He sort of "spread it out" to come up with a monthly "income" for me since I am unemployed.

So, yeah, I owe on my penality on my taxes and can't pay those righ tnow but I honestly had no other funds when I did that. So it is gone now. But for me how much tax I will need to pay isn't so big that I am kicking myself for doing this. It bothered me at the time to have to do it but now I figure at least I got to use it for my needs than have the market swallow it up.

I think the more you take out the worse it will look. I took it out in 5,000 amount as I needed (hoping I wouldn't have to withdraw anymore because I would have a job soon) so I would only take it out if really have no other money left. I mean, would I not take out 401K or starve to death? That is a no brainer. So, I pay a penalty, big deal - I actually think the cc's interest rate is more of a killer than the 401K penalty. At least, that is a one time shot - if you have tons of cc debt you might pay more in the long run.

That is just the way I view the whole 401K thing - Lots of people take it pretty serious if you want to withdraw on your 401K. I figure what good is that money that I earned if I can't get to it when I really need it?